PEORIA — Though members of the Peoria City Council are being asked to OK the change in management companies for the Marriott Pere Marquette hotel and attached Courtyard by Marriott, they aren’t the only ones who have to consent.

Others involved in the process have to give their permission, including banks that have provided financing to the property — one of which also is in the process of foreclosing on a host of other sites owned by hotel developer Gary Matthews.

Court records show Matthews faces foreclosure proceedings on some of his Tazewell County properties by Morton Community Bank. And he also has recently faced lawsuits from an individual integrally involved in the hotel deal and a company that worked on reconstruction of the historic building.

No fewer than five lawsuits have been filed in Tazewell County Circuit Court this spring involving Matthews, his partner Monte Brannan and their associated companies including EM Properties. The suits allege Matthews has defaulted on several mortgage payments, failed to abide by loan agreements and in one case, nullified a consulting contract.

In all, Matthews appears to be on the hook for upwards of $10 million, which includes mortgage, costs, fees and other penalties at the same time he’s asking the City Council and other lenders to sign off on a change in management companies from Marriott International to First Hospitality Group. Peoria’s leaders have a say because the city is supporting the project with $37 million of taxpayer-backed bonds.

“Our legal team has been monitoring the situation and we’re still reviewing what potential impact that may have on the project,” City Manager Patrick Urich said Friday. “We will vigorously protect our rights under our second mortgage position.”

Calls to both Matthews and Brannan were not returned Friday.

Foreclosures and permissions

The biggest issue is the apparent desire of Morton Community Bank to foreclose on several East Peoria properties located off River Road, Riverside Drive and Camp Street. The bank also is seeking to foreclose on Matthews’ other signature development, GEM Terrace, which sits up on a hill near Interstate 74 and Main Street.

All are represented by a multitude of limited liability corporations and several mortgages. While the amounts vary, the theme is common: at some point within the past year or so, the corporation responsible for the mortgage stopped paying. The suit, which was filed Tuesday, seeks to have Pekin-based Leman Property Management named as a receiver for all the parcels.

The bank’s attorney, Timothy Bertschy, declined to comment on the matter.

It’s unclear what if any effect that conflict over payments would have on the bank’s involvement in the separate loan to EM Properties for the Pere Marquette or its assent to any changes in the management firm operating the latter. A phone message and email to bank president Jim Mamer to verify the status of an agreement with the bank on the management firm swap were not immediately returned Friday.

Page 2 of 3 - The Peoria City Council, however, is not expected to vote on the change to FHG at its meeting Tuesday, Urich said. Work to secure permission for the change from others with a financial stake in the project continues.

Consulting, loan payments

Another suit Matthews faces involves AC Physician Management Inc., a development consulting business owned by Dr. Andy Chiou of Morton, who publicly supported the project and who the developer praised for his efforts at a VIP reception the night before the hotel’s official opening.

Chiou’s company was to be paid $10,000 a month for consulting services for two years, though he maintains he’s still owed $70,000 from before the contract was terminated — as well as more than $200,000 from a loan he made to Matthews.

The physician did not return a message left at his medical practice Friday afternoon.

In a letter dated Jan. 20 that was filed as an exhibit in the suit, Matthews concedes he owes Chiou money, saying that he still expects the hotel to be a success, though “it is taking longer and frankly, taking much more management than anyone expected. The increased time and effort the Pere is requiring has resulted in cash flow issues for my company.”

Matthews also references his $8.4 million development fee he’s expected to recoup from the project, as well as $780,000 he expects to recover that he “put in over the last 4 (sic) years to keep the project going” and notes that work is ongoing to “make the Pere Marquette as successful as we all expected it to be when the project was started.”

Meanwhile, Core Construction Services of Illinois Inc. filed suit in late May and judgment was entered against Matthews and Brannan for defaulting on a loan for about $1.5 million plus costs. It was not clear what property or properties that was in relation to. Core inked a $44 million construction contract for the Pere Marquette in 2011, but the company does substantial work throughout the region.

Delays, murky details

Matthews has offered little detail on the reasons for the change in management firms except to say that FHG specializes in Midwest hotels and might be able to step up marketing and employee training for the facilities. He first called for the change about a month ago.

When the agreement with Marriott International was announced, including a contract to manage the site for 30 years, Matthews praised the company’s commitment to the endeavor.

“National branding and a quality project will benefit the entire Downtown, giving Peoria the edge it needs to compete with surrounding communities such as Bloomington,” he said just less than three years ago.

Page 3 of 3 - Some members of the City Council have expressed interest in knowing more about FHG, including how the firm treats its employees and their qualifications to manage what’s been cited as a full-service Downtown convention hotel. Many of FHG’s properties are more limited-service facilities that cater to business travelers, though it manages some facilities — including at least one in Chicago — that have been described as on par with the Pere or of higher quality.

Both the Pere Marquette and the Courtyard have been dogged with delays from the inception, with the Pere opening several months late and the Courtyard already behind on an opening initially scheduled for March 2014. EM Properties has been required to pay tens of thousands of dollars to the city for those delays.

Financing also was slow to come to the hotel effort. Though the City Council initially approved the deal in December 2008, EM Properties had difficulty for several years securing financing during the recession. In the interim, Matthews and the council tweaked the initial agreement as he lined up money. Renovations began in earnest at the Pere in late spring of 2012 and it reopened to the public 13 months later, with construction beginning months thereafter on the Courtyard.

The financial picture for the hotel itself remains murky. Details are cloaked by a confidentiality agreement the city entered into with the developer, and Urich has only described performance as “in the ballpark” of expectations, with occupancy rates “consistent with other hotels.”

Both he and Assistant City Manager Chris Setti have cautioned that it often takes into the third year of operations for facilities like the Pere to develop an accurate picture of their performance.

Chris Kaergard can be reached at 686-3135 or ckaergard@pjstar.com. Follow him on Twitter @ChrisKaergard. Andy Kravetz can be reached at 686-3283 or akravetz@pjstar.com. Follow him on Twitter @andykravetz.